78% of Trump Tax Cuts Are for Businesses - not Individuals

The Urban-Brookings Tax Policy Center produced some estimates of the tax revenues supposedly lost by the most recent (September) Trump tax plan, which raised the top tax rate from 25% to 33%.  

These estimates are being widely misunderstood by the Wall Street Journal, New York Times and others, so it may help to actually see the TPC 10-year totals organized by tax changes proposed for individuals, corporations and pass-through businesses. 

The estimates themselves are questionable as are related estimates of the distribution of tax cuts by income groups.  I will deal with those issues in separate posts.  

What most needs emphasizing at this point is that although reporters are writing as though the Trump package is about personal income tax cuts, that only accounts for 22% of the estimated revenue loss (relative to bloated CBO estimates).  Moreover, the 10-year $1.5 trillion loss of revenue from modestly lower individual income tax rates is much smaller than estimated revenue increases from repealing personal exemptions ($2 trillion) and capping itemized deductions ($559 billion).  

The only significant net reduction in taxes on non-business income is from (1) repeal of the alternative minimum tax ($413 billion), and (2) more than doubling the standard deduction ($1.7 trillion) – neither change being of any help to top-income taxpayers. 

TAX POLICY CENTER ESTIMATES OF 10-YEAR REVENUE LOSS FROM TRUMP TAX PLAN, 2016-2026, $ billions

Repeal Obamacare 3.8% investment income tax 

-145

Repeal alternative minimum tax

-413

Repeal head of household filing status

131

Repeal personal exemptions

2,000

Individual income tax rates of 12, 25, and 33 percent 

-1,490

Increase standard deduction to $35,000/couple ($24,000 in GOP plan)

-1,688

Cap itemized deductions at $100,000 ($200,000 joint return)

559

Childcare refundable tax credit

-132

Repeal estate, gift and GST taxes but tax capital gains at death.

-174

TOTAL INDIVIDUAL TAX LESS PASS-THROUGH BUSINESS = 22% of Total

-1,353

 

 

Elective flat rate of 15 percent on pass-through income  

-895

Shifting of wages and salaries to 15% business income (tax avoidance)

-649

Allow expensing of non-corp investment & disallow interest deduction for those electing to expense

-689

Tax carried interests as ordinary business income

10

Repeal certain pass-through business tax expenditures

58

TOTAL PASS-THROUGH BUSINESS = 35.2% of Total

-2,164

 

 

Reduce corporate rate to 15% & repeal corporate AMT

-2,355

Allow expensing of corp investment & disallow interest deduction for those electing to expense.

-593

Deemed repatriation 10 yrs. of untaxed foreign earnings then tax foreign subsidiaries on accrued profit

148

Repeal certain corporate tax expenditures

167

 

 

TOTAL CORPORATE BUSINESS = 43.8% of Total

-2,633

 

 

TOTAL STATIC REVENUE LOSS  

-6,150